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1 1 (May 27, 2022)

handle is hein.crs/govefvm0001 and id is 1 raw text is: C o n g9 r s o a R e e r h e v c May 27, 2022 Automation, Worker Training, and Federal Tax Policy Technologies that partly or fully automate a variety of tasks are being used with increasing frequency in a range of industries and occupations. These technologies include robotics, machine learning, and other forms of artificial intelligence (AI). This increasing use of automation has fueled the concern that the substitution of machines for humans in a growing number of workplaces will result in massive job losses, especially for unskilled or low-skilled workers. Some predict that if such a scenario were to arise, many displaced workers would face a bleak future marked by fewer job opportunities at lower wages, long-term earnings losses, and poor health. The worker-displacing potential of automation has given rise to a debate over what steps firms, governments, postsecondary schools, and other entities should take, if any, to help displaced workers find well-paying jobs that may or may not be linked to automation. This In Focus looks at how federal tax policy might be used for that purpose. Specifically, it addresses the pros and cons of possible new business tax incentives to encourage employers to invest more in training their employees and to dissuade them from increasing automation investment. This overview does not address possible new tax incentives for individuals to acquire on their own the skills and knowledge they would need to find well-paying jobs. Automation and Worker Displacement The spread of workplace automation has raised many policy concerns in recent years. They include the jobs that are likely to disappear, the jobs that will be created, the wage effects of this churning automation's impact on how and where jobs are performed, and actions that employers and federal, state, and local governments might take to facilitate the transition of displaced workers to new jobs. A number of studies have addressed these and other concerns. Of particular note is a 2020 paper by Daron Acemoglu and Pascual Restrepo on the impact of robots (narrowly defined) on U.S. employment and wages. The authors estimated that the addition of one robot for every 1,000 U.S. employees resulted in a slight decline in overall wages (0.42%) and the employment-to-population ratio (0.2 percentage points, which meant the loss of about 400,000 jobs) from 1993 to 2007. They also found that the declines varied by industry. A broader perspective on the labor-saving potential of automation came from a 2019 report by the McKinley Global Institute. The study predicted that 49.1 million U.S. jobs might be lost because of automation from 2020 to 2030. But only one-third of those workers (14.9 million) would have to find jobs completely unrelated to their previous jobs; the other two-thirds (34.2 million) would likely fill jobs created by automation requiring new skills and knowledge. The study also estimated that low-wage workers were four times more likely to be displaced by automation in that decade than were highly paid workers. Investment in Worker Training and Education Investment in worker training and education is a key source of economic and productivity growth owing to its impact on human capital. In theory, both employees and employers reap benefits from this investment. Employees gain new skills and knowledge that they can use to obtain well- paying and more interesting jobs. Employers obtain a more productive, skilled, loyal, and motivated workforce. Yet there is a possible employer downside to such investment in the form of a market failure. In general, such a failure refers to a condition that prevents or hinders economically efficient outcomes. In the case of employer investments in worker education and training, a market failure could arise when an employee transfers skills and knowledge he or she received from training from a former employer to another employer. Such a transfer allows the second employer to benefit from the enhanced human capital without bearing any of its cost. Economists regard these spillovers as a market failure because the inability of employers to capture all returns to their training and education investments is thought to lead them to invest too little in worker training and education relative to its overall economic benefits. Government subsidies might boost this investment to socially optimal levels. Worker Training Investment and the Federal Income Tax The federal income tax offers no targeted incentive for employers to invest in worker training. Internal Revenue Code (IRC) Section 162(a) permits businesses to deduct in full their ordinary and necessary expenses in the year they are paid or incurred in calculating their taxable income. Employee training expenses are among these expenses. Some limits apply to employees who pay for classes on their own to improve their work skills and knowledge. In general, they may deduct the cost of the classes only if they are directly related to their current jobs. Arguably, the federal tax code contains an implicit tax incentive for firms to invest in worker training. This incentive is known as expensing, which allows an employer to deduct the full amount of qualified training costs in the year they are incurred or paid. Expensing benefits employers by lowering the cost of capital for qualifying investments and boosting short-term cash flow-although ittps://Crsreports.congress.gt

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